Friday, August 27, 2010

Silver and gold are known as precious metals. This is because they are and have always been considered precious. Something can be considered precious if it is extremely rare or highly valued or of great worth. With gold recently reaching a price of $1240 per troy ounce, this would meet the definition of highly valued and great worth.

Silver on the other hand is currently trading at just $19 per troy ounce. When compared to gold, silver doesn't look so highly valued and doesn't really meet the definition of having great worth. I'm sure you don't consider 20 bucks to be a large sum of money. $1240 on the other hand is quite a bit more impressive.

Looking at it another way, silver is currently worth approximately 65 times less than gold. Or gold is 66 times more valuable than silver. So the gold to silver ratio would be 65. Does this mean that gold is 65 times more rare than silver? Well, as I previously wrote on this site, above ground refined silver is rarer than gold.

Above ground refined silver and gold are gold and silver that have been mined from the earth and put into a tangible form such as jewelry, coins and bars. I find this to be quite remarkable.

If you look at the historical ratio of gold in terms of silver, it used to be about 16 to 1. Meaning gold used to be about 16 times more valuable than silver. Not surprisingly, historically there was about 16 times more silver mined each year than gold.

How about now? According to the Silver Institute, silver production from mining in 2009 was up 4% to 709.6 million ounces. That would put 2008 annual silver production at 682 million ounces. According to Gold Sheet Links, annual gold production for 2008 was approximately 76 million ounces. This would put the current silver to gold production ratio right about at 9. So 9 times more silver is currently being produced than gold.

Silver and gold have both been used as money and a store of value throughout history. In fact, up until 1964, the United States used 90% silver coins as our circulating currency. So getting back to the point, how can silver logically trade at such a small fraction of the price of gold when it is 5 times more rare in above ground available form and only 9 times more available on an annual production basis?

This leads me to believe that silver is extremely cheap in comparison to gold. I believe silver is extremely undervalued at this price.

In a company release Caledonia stated that they have completed all of the underground installations at the Number 4 shaft project at the Blanket Gold Mine in Zimbabwe. So even though they have been fighting an unstable political and economic climate with frequent power outages, they are still on schedule to make their target production rate of 40,000 ounces of gold per annum from the Blanket Mine.

"Dry commissioning" of the automated skip loading system from 789m level to surface and the 765m level crushing station will commence at the end of August after which work will commence to widen the 750m level haulage above the grizzly tips which will be followed by the excavation of the first of three underground storage bins located between the 750m haulage and the 765m crushing station. The waste from these operations will be used to "wet commission" the entire shaft-bottom crushing and loading system. This process is planned to be completed by end of September, 2010. The flexibility to handle and hoist ore and waste rock separately to surface is intrinsic to the underground design and new installations.

Blanket will then commence the progressive production ramp-up to a target rate of 1,000 tonnes per day, or approximately 40,000 ounces of gold per annum. This is planned to be completed by the end of December 2010, although the ability to meet this target within this timeframe will depend on the availability of power. Work has already started on developing new mining production panels to allow for a rapid increase in the tonnes of ore mined per day.

This is a very interesting time for silver and gold investors as the relationship between the ratio of silver to gold gets ready to show where we are headed next. Stay tuned as this event will be taking place shortly. See the silver to gold ratio chart below for more clarification.

Wednesday, August 25, 2010

This morning while I was watching the quotes from my Scottrade account I noticed something very odd. The bid and ask for SLV silver ETF fund were not representative of the price. This is not a normal occurrence as I have been watching the SLV fund trade on my quote board since its inception. The bid and ask almost always move in an orderly fashion with the price.

I captured some screen shots of while it was happening. The price of SLV was rocketing higher at first with the bid and ask staying lower. Then later the bid and ask were higher as the price of SLV was moving lower. Eventually, as the excitement died down, the bid and ask moved into alignment with the price.

Check out these screen shots in the order that I captured them. What does this mean if anything at all?

Thursday, August 19, 2010

CANADIAN firm Caledonia Mining Corporation has commissioned the first standby generator at Blanket Gold Mine as the local gold miner is pressing ahead with its expansion programme.

Persistent energy woes have stalled Blanket Mine’s expansion progress in the first half of the year.

In a statement Caledonia indicated that more standby generators would be installed in the near future to offset the company’s energy deficiencies.

"Caledonia Mining Corporation is pleased to announce the installation and commissioning on schedule of the first of several planned 2.5MVA diesel generators at the Blanket Gold Mine in Zimbabwe.

"In light of the rapid deterioration in electricity supply, Caledonia decided in early May to accelerate Blanket’s programme to install standby diesel generating capacity. The first standby generator has now been installed and commissioned and will enable continuous operation of the mining operations and of the equipment installation activities which are necessary to complete the Number 4 Shaft Expansion.

Saturday, August 14, 2010

Long time consolidation is coming to an end soon. Will it be a breakout to the upside with silver outperforming gold and falling in line with an inflationary environment? Or, will it break down and continue with gold outperforming and falling in line with a deflationary environment?

Wednesday, August 11, 2010

Two charts say we are nearing the end of consolidation of the gold to silver ratio and the silver to gold ratio in it's inverse. So what is it going to be? Gold possibly outperforming in a deflationary scare or silver outperforming in a burst of inflationary expectations?